2024 (11) TMI 771 - AT - Income Tax

Deduction u/s 80-IA on retention money offered to tax in the original return of Income - HELD THAT - CIT(A) for the assessment year 2017-18 has deleted the disallowance made by the Assessing Officer for retention money to the extent of Rs. 11,36,37,740/-. Therefore, the finding of the ld.CIT(A) is not correct to that extent. In our view, the Revenue should take a consistent view unless there is a change of fact or law. We do not approve the approach of the ld.CIT(A) for deciding the issue when the issue has already been considered and examined by the ld.CIT(A) in the earlier assessment year i.e., 2017-18. CIT(A) while deciding the issue against the assessee, has relied upon the decision of M/s. McNally Bharat Engineering Co. Ltd, Kolkata 2017 (3) TMI 207 - ITAT KOLKATA - Section 43CB as reproduced hereinabove which was inserted in the statute book w.e.f 01.04.2017 provides the how the retention money was required to be treated while computing the profit and gains arising from the construction contract. Section 43CB(2)(i) clearly provides that for the purposes of percentage completion method, the project completion method or straight-line method, the contract revenue shall include retention money. In view of the clear provision of law, the assessee was right in including the retention money in contract receipts. It is consistent case of both the parties that the retention money was retained by the contractor pertaining to the construction activities for which the assessee was eligible for section 80IA of the Act. The retention money cannot have a different characteristics than that of the principle amount of the contract as both are part and parcel of the revenue which would be received by the assessee or was received by the assessee for carrying out the construction activities. In view of the above, the order passed by the ld.CIT(A) is without any merit and therefore, the appeal of the assessee is required to be allowed. In the present case, the reliance of the ld.CIT(A) in the case of DCIT, Circle 1 Vs. M/s. McNally Bharat Engineering Co. Ltd (supra) form basis of deciding the issue against the assessee. However, we find that Section 43CB, which came into the statutue w.e.f. 01.04.2017 clearly provides for considering the retention money as a contract receipt for computing the profit and gains arising from the construction contract. In light of the above, the appeal of the assessee is allowed.

Summary

Issues Involved:

1. Deduction under Section 80-IA on Retention Money.
2. Addition of Interest Income and TDS Credit.

Issue-wise Detailed Analysis:

1. Deduction under Section 80-IA on Retention Money:

The primary issue revolves around whether the retention money should be included while computing the deduction under Section 80-IA. The assessee claimed a deduction under Section 80-IA, which included retention money of Rs. 31,86,76,819/-. The Assessing Officer (AO) disallowed this deduction, arguing that the retention money was uncertain and could not be considered as part of the taxable profits. The AO's decision was based on the premise that retention money is only released upon fulfillment of contract terms, introducing uncertainty about its realization. The AO relied on the definition of retention money as per ICDS III, which states it should be recognized as 'Contract Revenue' only when there is reasonable certainty of its collection.

The assessee appealed against this decision, arguing that as per the Income Computation and Disclosure Standard (ICDS) and judicial pronouncements, retention money should be included in the contract revenue. The assessee cited Section 43CB, which mandates that contract revenue shall include retention money for the purposes of percentage of completion method. The CIT(A) upheld the AO's decision, referencing the Kolkata Tribunal's decision in DCIT vs. M/s. McNally Bharat Engineering Co. Ltd., which held that retention money should not be considered while computing profits and gains.

However, the Tribunal found that the CIT(A) erred by not considering that Section 43CB, effective from 01.04.2017, explicitly includes retention money in contract revenue. The Tribunal also noted that the CIT(A) had previously allowed the deduction for retention money in AY 2017-18, indicating inconsistency in the Revenue's approach. The Tribunal concluded that the retention money should be included in the contract revenue for the deduction under Section 80-IA, thus allowing the assessee's appeal on this issue.

2. Addition of Interest Income and TDS Credit:

The second issue concerns the addition of interest income amounting to INR 1,00,252/- and the corresponding TDS credit. The AO added this interest income to the assessee's taxable income, as it was not offered for tax in the relevant assessment year. The assessee contended that this interest income was offered in subsequent years and that the corresponding TDS credit of INR 10,025/- should be allowed against it. Additionally, the assessee argued for the allowance of TDS credit of INR 60,958/-, which was not claimed in subsequent years.

The CIT(A) upheld the AO's decision, maintaining that the interest income should be taxed in the year it was earned, and the corresponding TDS credit should be allowed in the same year. The Tribunal did not specifically address this issue in detail, as the primary focus was on the deduction under Section 80-IA. However, the Tribunal's decision to allow the appeal implies that the assessee's contentions regarding the interest income and TDS credit may also be considered favorably, subject to verification and compliance with procedural requirements.

In conclusion, the Tribunal allowed the appeal of the assessee, emphasizing the inclusion of retention money in contract revenue as per Section 43CB and highlighting the need for consistency in the Revenue's approach across different assessment years.